BILL NUMBER: SB 737	CHAPTERED  09/16/99

	CHAPTER   434
	FILED WITH SECRETARY OF STATE   SEPTEMBER 16, 1999
	APPROVED BY GOVERNOR   SEPTEMBER 16, 1999
	PASSED THE SENATE   AUGUST 31, 1999
	PASSED THE ASSEMBLY   AUGUST 26, 1999
	AMENDED IN ASSEMBLY   JUNE 17, 1999

INTRODUCED BY   Committee on Insurance (Senators Speier (Chair),
Escutia, Figueroa, Johnson, Leslie, Lewis, and Sher)

                        FEBRUARY 24, 1999

   An act to amend Sections 1357 and 1357.50 of the Health and Safety
Code, and to amend Section 10700 of the Insurance Code, relating to
small employer health insurance.


	LEGISLATIVE COUNSEL'S DIGEST


   SB 737, Committee on Insurance.  Small employer health insurance:
enrollment of dependents.
   Existing law provides for licensing and regulation of health care
service plans by the Commissioner of Corporations, and provides for
licensing and regulation of disability insurers by the Insurance
Commissioner.  Existing law requires health care service plans and
disability insurers to comply with certain provisions governing
health care coverage for eligible employees and dependents of small
employers, which are defined to be employers that have between 2 and
50 employees.  Under these provisions, eligible employees who decline
enrollment at the time of the initial enrollment period, but who
subsequently request enrollment in the health benefit plan (defined
as "late enrollees"), may generally be excluded from coverage for a
period not to exceed 12 months from the date of the application for
coverage, as specified.
   This bill would provide that an individual is not a "late enrollee"
for these purposes if the individual is an eligible employee who
previously declined coverage under an employer health benefit plan
and who has subsequently acquired an eligible dependent through
marriage, birth, adoption, or placement for adoption, and who enrolls
for coverage on his or her behalf and on behalf of his or her
dependent within 30 days following the date of marriage, birth,
adoption, or placement for adoption.  This bill would require that
the effective date of coverage in that instance be the first day of
the month following the date of receipt of the completed request for
enrollment in the case of marriage, or the date of birth, or the date
of adoption or placement for adoption, whichever applies.  This bill
would require an employer to provide notification of these special
enrollment rights to an employee at or before the time the employee
is offered an opportunity to enroll in plan coverage.
   This bill would also provide that an individual is not a "late
enrollee" for these purposes if the individual is an eligible
employee who previously declined coverage for himself or herself or
his or her dependents under an employer health benefit plan because
the dependents were covered by other health coverage.  This bill
would provide a special open enrollment opportunity for the eligible
employee in this case if his or her dependents have lost or will lose
coverage under that other health coverage.  This bill would require
that the effective date of coverage in that instance be the first day
of the month following the date of receipt of the request for
enrollment.  This bill would require an employer to provide
notification of these special enrollment rights to an employee at or
before the time the employee is offered an opportunity to enroll in
plan coverage.
   Existing law provides that a willful violation of the provisions
governing health care service plans is a crime.  Because a violation
of the bill's requirements with respect to a health care service plan
would be a crime, this bill would impose a state-mandated local
program by creating a new crime.
  The California Constitution requires the state to reimburse local
agencies and school districts for certain costs mandated by the
state.  Statutory provisions establish procedures for making that
reimbursement.
   This bill would provide that no reimbursement is required by this
act for a specified reason.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:


  SECTION 1.  Section 1357 of the Health and Safety Code is amended
to read:
   1357.  As used in this article:
   (a) "Dependent" means the spouse or child of an eligible employee,
subject to applicable terms of the health care plan contract
covering the employee, and includes dependents of guaranteed
association members if the association elects to include dependents
under its health coverage at the same time it determines its
membership composition pursuant to subdivision (o).
   (b) "Eligible employee" means either of the following:
   (1) Any permanent employee who is actively engaged on a full-time
basis in the conduct of the business of the small employer with a
normal workweek of at least 30 hours, at the small employer's regular
places of business, who has met any statutorily authorized
applicable waiting period requirements.  The term includes sole
proprietors or partners of a partnership, if they are actively
engaged on a full-time basis in the small employer's business and
included as employees under a health care plan contract of a small
employer, but does not include employees who work on a part-time,
temporary, or substitute basis.  It includes any eligible employee as
defined in this paragraph who obtains coverage through a guaranteed
association.  Employees of employers purchasing through a guaranteed
association shall be deemed to be eligible employees if they would
otherwise meet the definition except for the number of persons
employed by the employer.  Permanent employees who work at least 20
hours but not more than 29 hours are deemed to be eligible employees
if all four of the following apply:
   (A) They otherwise meet the definition of an eligible employee
except for the number of hours worked.
   (B) The employer offers the employees health coverage under a
health benefit plan.
   (C) All similarly situated individuals are offered coverage under
the health benefit plan.
   (D) The employee must have worked at least 20 hours per normal
workweek for at least 50 percent of the weeks in the previous
calendar quarter.  The health care service plan may request any
necessary information to document the hours and time period in
question, including, but not limited to, payroll records and employee
wage and tax filings.
   (2) Any member of a guaranteed association as defined in
subdivision (o).
   (c) "In force business" means an existing health benefit plan
contract issued by the plan to a small employer.
   (d) "Late enrollee" means an eligible employee or dependent who
has declined enrollment in a health benefit plan offered by a small
employer at the time of the initial enrollment period provided under
the terms of the health benefit plan and who subsequently requests
enrollment in a health benefit plan of that small employer, provided
that the initial enrollment period shall be a period of at least 30
days.  It also means any member of an association that is a
guaranteed association as well as any other person eligible to
purchase through the guaranteed association when that person has
failed to purchase coverage during the initial enrollment period
provided under the terms of the guaranteed association's plan
contract and who subsequently requests enrollment in the plan,
provided that the initial enrollment period shall be a period of at
least 30 days.  However, an eligible employee, any other person
eligible for coverage through a guaranteed association pursuant to
subdivision (o), or dependent shall not be considered a late enrollee
if any of the following is applicable:
   (1) The individual meets all of the following requirements:
   (A) He or she was covered under another employer health benefit
plan or no share-of-cost Medi-Cal coverage at the time the individual
was eligible to enroll.
   (B) He or she certified at the time of the initial enrollment that
coverage under another employer health benefit plan or no
share-of-cost Medi-Cal coverage was the reason for declining
enrollment, provided that, if the individual was covered under
another employer health plan, the individual was given the
opportunity to make the certification required by this subdivision
and was notified that failure to do so could result in later
treatment as a late enrollee.
   (C) He or she has lost or will lose coverage under another
employer health benefit plan as a result of termination of employment
of the individual or of a person through whom the individual was
covered as a dependent, change in employment status of the individual
or of a person through whom the individual was covered as a
dependent, termination of the other plan's coverage, cessation of an
employer's contribution toward an employee or dependent's coverage,
death of the person through whom the individual was covered as a
dependent, legal separation, divorce, or loss of no share-of-cost
Medi-Cal coverage.
   (D) He or she requests enrollment within 30 days after termination
of coverage or employer contribution toward coverage provided under
another employer health benefit plan.
   (2) The employer offers multiple health benefit plans and the
employee elects a different plan during an open enrollment period.
   (3) A court has ordered that coverage be provided for a spouse or
minor child under a covered employee's health benefit plan.
   (4) (A) In the case of an eligible employee as defined in
paragraph (1) of subdivision (b), the plan cannot produce a written
statement from the employer stating that the individual or the person
through whom the individual was eligible to be covered as a
dependent, prior to declining coverage, was provided with, and
signed, acknowledgment of an explicit written notice in boldface type
specifying that failure to elect coverage during the initial
enrollment period permits the plan to impose, at the time of the
individual's later decision to elect coverage, an exclusion from
coverage for a period of 12 months as well as a six-month preexisting
condition exclusion, unless the individual meets the criteria
specified in paragraph (1), (2), or (3).
   (B) In the case of an association member who did not purchase
coverage through a guaranteed association, the plan cannot produce a
written statement from the association stating that the association
sent a written notice in boldface type to all potentially eligible
association members at their last known address prior to the initial
enrollment period informing members that failure to elect coverage
during the initial enrollment period permits the plan to impose, at
the time of the member's later decision to elect coverage, an
exclusion from coverage for a period of 12 months as well as a
six-month preexisting condition exclusion unless the member can
demonstrate that he or she meets the requirements of subparagraphs
(A), (C), and (D) of paragraph (1) or paragraph (2) or (3).
   (C) In the case of an employer or person who is not a member of an
association, was eligible to purchase coverage through a guaranteed
association, and did not do so, and would not be eligible to purchase
guaranteed coverage unless purchased through a guaranteed
association, the employer or person can demonstrate that he or she
meets the requirements of subparagraphs (A), (C), and (D) of
paragraph (1), or paragraph (2) or (3), or that he or she recently
had a change in status that would make him or her eligible and that
application for enrollment was made within 30 days of the change.
   (5) The individual is an employee or dependent who meets the
criteria described in paragraph (1) and was under a COBRA
continuation provision and the coverage under that provision has been
exhausted.  For purposes of this section, the definition of "COBRA"
set forth in subdivision (e) of Section 1373.621 shall apply.
   (6) The individual is a dependent of an enrolled eligible employee
who has lost or will lose his or her no share-of-cost Medi-Cal
coverage and requests enrollment within 30 days after notification of
this loss of coverage.
   (7) The individual is an eligible employee who previously declined
coverage under an employer health benefit plan and who has
subsequently acquired a dependent who would be eligible for coverage
as a dependent of the employee through marriage, birth, adoption, or
placement for adoption, and who enrolls for coverage under that
employer health benefit plan on his or her behalf, and on behalf of
his or her dependent within 30 days following the date of marriage,
birth, adoption, or placement for adoption, in which case the
effective date of coverage shall be the first day of the month
following the date the completed request for enrollment is received
in the case of marriage, or the date of birth, or the date of
adoption or placement for adoption, whichever applies.  Notice of the
special enrollment rights contained in this paragraph shall be
provided by the employer to an employee at or before the time the
employee is offered an opportunity to enroll in plan coverage.
   (8) The individual is an eligible employee who has declined
coverage for himself or herself or his or her dependents during a
previous enrollment period because his or her dependents were covered
by another employer health benefit plan at the time of the previous
enrollment period.  That individual may enroll himself or herself or
his or her dependents for plan coverage during a special open
enrollment opportunity if his or her dependents have lost or will
lose coverage under that other employer health benefit plan.  The
special open enrollment opportunity shall be requested by the
employee not more than 30 days after the date that the other health
coverage is exhausted or terminated.  Upon enrollment, coverage shall
be effective not later than the first day of the first calendar
month beginning after the date the request for enrollment is
received.  Notice of the special enrollment rights contained in this
paragraph shall be provided by the employer to an employee at or
before the time the employee is offered an opportunity to enroll in
plan coverage.
   (e) "New business" means a health care service plan contract
issued to a small employer that is not the plan's in force business.

   (f) "Preexisting condition provision" means a contract provision
that excludes coverage for charges or expenses incurred during a
specified period following the employee's effective date of coverage,
as to a condition for which medical advice, diagnosis, care, or
treatment was recommended or received during a specified period
immediately preceding the effective date of coverage.
   (g) "Creditable coverage" means:
   (1) Any individual or group policy, contract, or program that is
written or administered by a disability insurer, health care service
plan, fraternal benefits society, self-insured employer plan, or any
other entity, in this state or elsewhere, and that arranges or
provides medical, hospital, and surgical coverage not designed to
supplement other private or governmental plans.  The term includes
continuation or conversion coverage but does not include accident
only, credit, coverage for onsite medical clinics, disability income,
Medicare supplement, long-term care, dental, vision, coverage issued
as a supplement to liability insurance, insurance arising out of a
workers' compensation or similar law, automobile medical payment
insurance, or insurance under which benefits are payable with or
without regard to fault and that is statutorily required to be
contained in any liability insurance policy or equivalent
self-insurance.
   (2) The federal Medicare program pursuant to Title XVIII of the
Social Security Act.
   (3) The medicaid program pursuant to Title XIX of the Social
Security Act.
   (4) Any other publicly sponsored program, provided in this state
or elsewhere, of medical, hospital, and surgical care.
   (5) 10 U.S.C.A. Chapter 55 (commencing with Section 1071)
(Civilian Health and Medical Program of the Uniformed Services
(CHAMPUS)).
   (6) A medical care program of the Indian Health Service or of a
tribal organization.
   (7) A state health benefits risk pool.
   (8) A health plan offered under 5 U.S.C.A. Chapter 89 (commencing
with Section 8901) (Federal Employees Health Benefits Program
(FEHBP)).
   (9) A public health plan as defined in federal regulations
authorized by Section 2701(c)(1)(I) of the Public Health Service Act,
as amended by Public Law 104-191, the Health Insurance Portability
and Accountability Act of 1996.
   (10) A health benefit plan under Section 5(e) of the Peace Corps
Act (22 U.S.C.A. Sec. 2504(e)).
   (11) Any other creditable coverage as defined by subdivision (c)
of Section 2701 of Title XXVII of the federal Public Health Services
Act (42 U.S.C. Sec. 300gg(c)).
   (h) "Rating period" means the period for which premium rates
established by a plan are in effect and shall be no less than six
months.
   (i) "Risk adjusted employee risk rate" means the rate determined
for an eligible employee of a small employer in a particular risk
category after applying the risk adjustment factor.
   (j) "Risk adjustment factor" means the percentage adjustment to be
applied equally to each standard employee risk rate for a particular
small employer, based upon any expected deviations from standard
cost of services.  This factor may not be more than 120 percent or
less than 80 percent until July 1, 1996.  Effective July 1, 1996,
this factor may not be more than 110 percent or less than 90 percent.

   (k) "Risk category" means the following characteristics of an
eligible employee:  age, geographic region, and family composition of
the employee, plus the health benefit plan selected by the small
employer.
   (1) No more than the following age categories may be used in
determining premium rates:
   Under 30
   30-39
   40-49
   50-54
   55-59
   60-64
   65 and over
   However, for the 65 and over age category, separate premium rates
may be specified depending upon whether coverage under the plan
contract will be primary or secondary to benefits provided by the
federal Medicare program pursuant to Title XVIII of the federal
Social Security Act.
   (2) Small employer health care service plans shall base rates to
small employers using no more than the following family size
categories:
   (A) Single.
   (B) Married couple.
   (C) One adult and child or children.
   (D) Married couple and child or children.
   (3) (A) In determining rates for small employers, a plan that
operates statewide shall use no more than nine geographic regions in
the state, have no region smaller than an area in which the first
three digits of all its ZIP Codes are in common within a county, and
divide no county into more than two regions.  Plans shall be deemed
to be operating statewide if their coverage area includes 90 percent
or more of the state's population.  Geographic regions established
pursuant to this section shall, as a group, cover the entire state,
and the area encompassed in a geographic region shall be separate and
distinct from areas encompassed in other geographic regions.
Geographic regions may be noncontiguous.
   (B) In determining rates for small employers, a plan that does not
operate statewide shall use no more than the number of geographic
regions in the state than is determined by the following formula:
the population, as determined in the last federal census, of all
counties that are included in their entirety in a plan's service area
divided by the total population of the state, as determined in the
last federal census, multiplied by nine.  The resulting number shall
be rounded to the nearest whole integer.  No region may be smaller
than an area in which the first three digits of all its ZIP Codes are
in common within a county and no county may be divided into more
than two regions.  The area encompassed in a geographic region shall
be separate and distinct from areas encompassed in other geographic
regions.  Geographic regions may be noncontiguous.  No plan shall
have less than one geographic area.
   Nothing in this section shall be construed to require a plan to
establish a new service area or to offer health coverage on a
statewide basis, outside of the plan's existing service area.
   (l) "Small employer" means either of the following:
   (1) Any person, firm, proprietary or nonprofit corporation,
partnership, public agency, or association that is actively engaged
in business or service, that, on at least 50 percent of its working
days during the preceding calendar quarter or preceding calendar
year, employed at least two, but no more than 50, eligible employees,
the majority of whom were employed within this state, that was not
formed primarily for purposes of buying health care service plan
contracts, and in which a bona fide employer-employee relationship
exists.  In determining whether to apply the calendar quarter or
calendar year test, a health care service plan shall use the test
that ensures eligibility if only one test would establish
eligibility.  However, for purposes of subdivisions (a), (b), and (c)
of Section 1357.03, the definition shall include employers with at
least three eligible employees until July 1, 1997, and two eligible
employees thereafter.  In determining the number of eligible
employees, companies that are affiliated companies and that are
eligible to file a combined tax return for purposes of state taxation
shall be considered one employer.  Subsequent to the issuance of a
health care service plan contract to a small employer pursuant to
this article, and for the purpose of determining eligibility, the
size of a small employer shall be determined annually.  Except as
otherwise specifically provided in this article, provisions of this
article that apply to a small employer shall continue to apply until
the plan contract anniversary following the date the employer no
longer meets the requirements of this definition.  It includes any
small employer as defined in this paragraph who purchases coverage
through a guaranteed association, and any employer purchasing
coverage for employees through a guaranteed association.
   (2) Any guaranteed association, as defined in subdivision (n),
that purchases health coverage for members of the association.
   (m) "Standard employee risk rate" means the rate applicable to an
eligible employee in a particular risk category in a small employer
group.
   (n) "Guaranteed association" means a nonprofit organization
comprised of a group of individuals or employers who associate based
solely on participation in a specified profession or industry,
accepting for membership any individual or employer meeting its
membership criteria, and that (1) includes one or more small
employers as defined in paragraph (1) of subdivision (l), (2) does
not condition membership directly or indirectly on the health or
claims history of any person, (3) uses membership dues solely for and
in consideration of the membership and membership benefits, except
that the amount of the dues shall not depend on whether the member
applies for or purchases insurance offered to the association, (4) is
organized and maintained in good faith for purposes unrelated to
insurance, (5) has been in active existence on January 1, 1992, and
for at least five years prior to that date, (6) has included health
insurance as a membership benefit for at least five years prior to
January 1, 1992, (7) has a constitution and bylaws, or other
analogous governing documents that provide for election of the
governing board of the association by its members, (8) offers any
plan contract that is purchased to all individual members and
employer members in this state, (9) includes any member choosing to
enroll in the plan contracts offered to the association provided that
the member has agreed to make the required premium payments, and
(10) covers at least 1,000 persons with the health care service plan
with which it contracts.  The requirement of 1,000 persons may be met
if component chapters of a statewide association contracting
separately with the same carrier cover at least 1,000 persons in the
aggregate.
   This subdivision applies regardless of whether a contract issued
by a plan is with an association or a trust formed for, or sponsored
by, an association to administer benefits for association members.
   For purposes of this subdivision, an association formed by a
merger of two or more associations after January 1, 1992, and
otherwise meeting the criteria of this subdivision shall be deemed to
have been in active existence on January 1, 1992, if its predecessor
organizations had been in active existence on January 1, 1992, and
for at least five years prior to that date and otherwise met the
criteria of this subdivision.
   (o) "Members of a guaranteed association" means any individual or
employer meeting the association's membership criteria if that person
is a member of the association and chooses to purchase health
coverage through the association.  At the association's discretion,
it also may include employees of association members, association
staff, retired members, retired employees of members, and surviving
spouses and dependents of deceased members.  However, if an
association chooses to include these persons as members of the
guaranteed association, the association shall make that election in
advance of purchasing a plan contract.  Health care service plans may
require an association to adhere to the membership composition it
selects for up to 12 months.
   (p) "Affiliation period" means a period that, under the terms of
the health care service plan contract, must expire before health care
services under the contract become effective.
  SEC. 2.  Section 1357.50 of the Health and Safety Code is amended
to read:
   1357.50.  For purposes of this article:
   (a) "Health benefit plan" means any individual or group, insurance
policy or health care service plan contract, that provides medical,
hospital, and surgical benefits.  The term does not include accident
only, credit, disability income, coverage of Medicare services
pursuant to contracts with the United States government, Medicare
supplement, long-term care insurance, dental, vision, coverage issued
as a supplement to liability insurance, insurance arising out of a
workers' compensation or similar law, automobile medical payment
insurance, or insurance under which benefits are payable with or
without regard to fault and that is statutorily required to be
contained in any liability insurance policy or equivalent
self-insurance.
   (b) "Late enrollee" means an eligible employee or dependent who
has declined health coverage under a health benefit plan offered
through employment or sponsored by an employer at the time of the
initial enrollment period provided under the terms of the health
benefit plan, and who subsequently requests enrollment in a health
benefit plan of that employer; provided that the initial enrollment
period shall be a period of at least 30 days.  However, an eligible
employee or dependent shall not be considered a late enrollee if any
of the following is applicable:
   (1) The individual meets all of the following requirements:
   (A) The individual was covered under another employer health
benefit plan or no share-of-cost Medi-Cal coverage at the time the
individual was eligible to enroll.
   (B) The individual certified, at the time of the initial
enrollment that coverage under another employer health benefit plan
or no share-of-cost Medi-Cal coverage was the reason for declining
enrollment provided that, if the individual was covered under another
employer health benefit plan, the individual was given the
opportunity to make the certification required by this subdivision
and was notified that failure to do so could result in later
treatment as a late enrollee.
   (C) The individual has lost or will lose coverage under another
employer health benefit plan as a result of termination of employment
of the individual or of a person through whom the individual was
covered as a dependent, change in employment status of the individual
or of a person through whom the individual was covered as a
dependent, termination of the other plan's coverage, cessation of an
employer's contribution toward an employee or dependent's coverage,
death of a person through whom the individual was covered as a
dependent, legal separation, divorce, or loss of no share-of-cost
Medi-Cal coverage.
   (D) The individual requests enrollment within 30 days after
termination of coverage, or cessation of employer contribution toward
coverage provided under another employer health benefit plan.
   (2) The individual is employed by an employer that offers multiple
health benefit plans and the individual elects a different plan
during an open enrollment period.
   (3) A court has ordered that coverage be provided for a spouse or
minor child under a covered employee's health benefit plan.  The
health benefit plan shall enroll a dependent child within 30 days
after receipt of a court order or request from the district attorney,
either parent or the person having custody of the child as defined
in Section 3751.5 of the Family Code, the employer, or the group
administrator.  In the case of children who are eligible for
medicaid, the State Department of Health Services may also make the
request.
   (4) The plan cannot produce a written statement from the employer
stating that, prior to declining coverage, the individual or the
person through whom the individual was eligible to be covered as a
dependent was provided with, and signed acknowledgment of, explicit
written notice in bold type specifying that failure to elect coverage
during the initial enrollment period permits the plan to impose, at
the time of the individual's later decision to elect coverage, an
exclusion from coverage for a period of 12 months as well as a
six-month preexisting condition exclusion, unless the individual
meets the criteria specified in paragraph (1), (2), or (3).
   (5) The individual is an employee or dependent who meets the
criteria described in paragraph (1) and was under a COBRA
continuation provision, and the coverage under that provision has
been exhausted.  For purposes of this section, the definition of
"COBRA" set forth in subdivision (e) of Section 1373.621 shall apply.

   (6) The individual is a dependent of an enrolled eligible employee
who has lost or will lose his or her no share-of-cost Medi-Cal
coverage and requests enrollment within 30 days of notification of
this loss of coverage.
   (7) The individual is an eligible employee who previously declined
coverage under an employer health benefit plan and who has
subsequently acquired a dependent who would be eligible for coverage
as a dependent of the employee through marriage, birth, adoption, or
placement                                                    for
adoption, and who enrolls for coverage under that employer health
benefit plan on his or her behalf, and on behalf of his or her
dependent within 30 days following the date of marriage, birth,
adoption, or placement for adoption, in which case the effective date
of coverage shall be the first day of the month following the date
the completed request for enrollment is received in the case of
marriage, or the date of birth, or the date of adoption or placement
for adoption, whichever applies.  Notice of the special enrollment
rights contained in this paragraph shall be provided by the employer
to an employee at or before the time the employee is offered an
opportunity to enroll in plan coverage.
   (8) The individual is an eligible employee who has declined
coverage for himself or herself or his or her dependents during a
previous enrollment period because his or her dependents were covered
by another employer health benefit plan at the time of the previous
enrollment period.  That individual may enroll himself or herself or
his or her dependents for plan coverage during a special open
enrollment opportunity if his or her dependents have lost or will
lose coverage under that other employer health benefit plan.  The
special open enrollment opportunity shall be requested by the
employee not more than 30 days after the date that the other health
coverage is exhausted or terminated.  Upon enrollment, coverage shall
be effective not later than the first day of the first calendar
month beginning after the date the request for enrollment is
received.  Notice of the special enrollment rights contained in this
paragraph shall be provided by the employer to an employee at or
before the time the employee is offered an opportunity to enroll in
plan coverage.
   (c) "Preexisting condition provision" means a contract provision
that excludes coverage for charges or expenses incurred during a
specified period following the enrollee's effective date of coverage,
as to a condition for which medical advice, diagnosis, care, or
treatment was recommended or received during a specified period
immediately preceding the effective date of coverage.
   (d) "Creditable coverage" means:
   (1) Any individual or group policy, contract or program, that is
written or administered by a disability insurance company, nonprofit
hospital service plan, health care service plan, fraternal benefits
society, self-insured employer plan, or any other entity, in this
state or elsewhere, and that arranges or provides medical, hospital
and surgical coverage not designed to supplement other private or
governmental plans.  The term includes continuation or conversion
coverage but does not include accident only, credit, coverage for
onsite medical clinics, disability income, Medicare supplement,
long-term care insurance, dental, vision, coverage issued as a
supplement to liability insurance, insurance arising out of a workers'
compensation or similar law, automobile medical payment insurance,
or insurance under which benefits are payable with or without regard
to fault and that is statutorily required to be contained in any
liability insurance policy or equivalent self-insurance.
   (2) The federal Medicare program pursuant to Title XVIII of the
Social Security Act.
   (3) The medicaid program pursuant to Title XIX of the Social
Security Act.
   (4) Any other publicly sponsored program, provided in this state
or elsewhere, of medical, hospital and surgical care.
   (5) 10 U.S.C.A. Chapter 55 (commencing with Section 1071)
(Civilian Health and Medical Program of the Uniformed Services
(CHAMPUS)).
   (6) A medical care program of the Indian Health Service or of a
tribal organization.
   (7) A state health benefits risk pool.
   (8) A health plan offered under 5 U.S.C.A. Chapter 89 (commencing
with Section 8901) (Federal Employees Health Benefits Program
(FEHBP)).
   (9) A public health plan as defined in federal regulations
authorized by Section 2701(c)(1)(I) of the Public Health Service Act,
as amended by Public Law 104-191, the Health Insurance Portability
and Accountability Act of 1996.
   (10) A health benefit plan under Section 5(e) of the Peace Corps
Act (22 U.S.C.A. Sec. 2504(e)).
   (11) Any other creditable coverage as defined by subdivision (c)
of Section 2701 of Title XXVII of the federal Public Health Services
Act (42 U.S.C. Sec. 300gg(c)).
   (e) "Waivered condition" means a contract provision that excludes
coverage for charges or expenses incurred during a specified period
of time for one or more specific, identified, medical conditions.
   (f) "Affiliation period" means a period that, under the terms of
the health benefit plan, must expire before health care services
under the plan become effective.
  SEC. 3.  Section 10700 of the Insurance Code is amended to read:
   10700.  As used in this chapter:
   (a) "Agent or broker" means a person or entity licensed under
Chapter 5 (commencing with Section 1621) of Part 2 of Division 1.
   (b) "Benefit plan design" means a specific health coverage product
issued by a carrier to small employers, to trustees of associations
that include small employers, or to individuals if the coverage is
offered through employment or sponsored by an employer.  It includes
services covered and the levels of copayment and deductibles, and it
may include the professional providers who are to provide those
services and the sites where those services are to be provided.  A
benefit plan design may also be an integrated system for the
financing and delivery of quality health care services which has
significant incentives for the covered individuals to use the system.

   (c) "Board" means the Major Risk Medical Insurance Board.
   (d) "Carrier" means any disability insurance company or any other
entity that writes, issues, or administers health benefit plans that
cover the employees of small employers, regardless of the situs of
the contract or master policyholder.  For the purposes of Articles 3
(commencing with Section 10719) and 4 (commencing with Section
10730), "carrier" also includes health care service plans.
   (e) "Dependent" means the spouse or child of an eligible employee,
subject to applicable terms of the health benefit plan covering the
employee, and includes dependents of guaranteed association members
if the association elects to include dependents under its health
coverage at the same time it determines its membership composition
pursuant to subdivision (z).
   (f) "Eligible employee" means either of the following:
   (1) Any permanent employee who is actively engaged on a full-time
basis in the conduct of the business of the small employer with a
normal workweek of at least 30 hours, in the small employer's regular
place of business, who has met any statutorily authorized applicable
waiting period requirements.  The term includes sole proprietors or
partners of a partnership, if they are actively engaged on a
full-time basis in the small employer's business, and they are
included as employees under a health benefit plan of a small
employer, but does not include employees who work on a part-time,
temporary, or substitute basis.  It includes any eligible employee as
defined in this paragraph who obtains coverage through a guaranteed
association.  Employees of employers purchasing through a guaranteed
association shall be deemed to be eligible employees if they would
otherwise meet the definition except for the number of persons
employed by the employer.  A permanent employee who works at least 20
hours but not more than 29 hours is deemed to be an eligible
employee if all four of the following apply:
   (A) The employee otherwise meets the definition of an eligible
employee except for the number of hours worked.
   (B) The employer offers the employee health coverage under a
health benefit plan.
   (C) All similarly situated individuals are offered coverage under
the health benefit plan.
   (D) The employee must have worked at least 20 hours per normal
workweek for at least 50 percent of the weeks in the previous
calendar quarter.  The insurer may request any necessary information
to document the hours and time period in question, including, but not
limited to, payroll records and employee wage and tax filings.
   (2) Any member of a guaranteed association as defined in
subdivision (z).
   (g) "Enrollee" means an eligible employee or dependent who
receives health coverage through the program from a participating
carrier.
   (h) "Financially impaired" means, for the purposes of this
chapter, a carrier that, on or after the effective date of this
chapter, is not insolvent and is either:
   (1) Deemed by the commissioner to be potentially unable to fulfill
its contractual obligations.
   (2) Placed under an order of rehabilitation or conservation by a
court of competent jurisdiction.
   (i) "Fund" means the California Small Group Reinsurance Fund.
   (j) "Health benefit plan" means a policy or contract written or
administered by a carrier that arranges or provides health care
benefits for the covered eligible employees of a small employer and
their dependents.  The term does not include accident only, credit,
disability income, coverage of Medicare services pursuant to
contracts with the United States government, Medicare supplement,
long-term care insurance, dental, vision, coverage issued as a
supplement to liability insurance, automobile medical payment
insurance, or insurance under which benefits are payable with or
without regard to fault and that is statutorily required to be
contained in any liability insurance policy or equivalent
self-insurance.
   (k) "In force business" means an existing health benefit plan
issued by the carrier to a small employer.
   (l) "Late enrollee" means an eligible employee or dependent who
has declined health coverage under a health benefit plan offered by a
small employer at the time of the initial enrollment period provided
under the terms of the health benefit plan, and who subsequently
requests enrollment in a health benefit plan of that small employer,
provided that the initial enrollment period shall be a period of at
least 30 days.  It also means any member of an association that is a
guaranteed association as well as any other person eligible to
purchase through the guaranteed association when that person has
failed to purchase coverage during the initial enrollment period
provided under the terms of the guaranteed association's health
benefit plan and who subsequently requests enrollment in the plan,
provided that the initial enrollment period shall be a period of at
least 30 days.  However, an eligible employee, another person
eligible for coverage through a guaranteed association pursuant to
subdivision (z), or dependent shall not be considered a late enrollee
if any of the following is applicable:
   (1) The individual meets all of the following requirements:
   (A) He or she was covered under another employer health benefit
plan or no share-of-cost Medi-Cal coverage at the time the individual
was eligible to enroll.
   (B) He or she certified at the time of the initial enrollment that
coverage under another employer health benefit plan or no
share-of-cost Medi-Cal coverage was the reason for declining
enrollment provided that, if the individual was covered under another
employer health plan, the individual was given the opportunity to
make the certification required by this subdivision and was notified
that failure to do so could result in later treatment as a late
enrollee.
   (C) He or she has lost or will lose coverage under another
employer health benefit plan as a result of termination of employment
of the individual or of a person through whom the individual was
covered as a dependent, change in employment status of the
individual, or of a person through whom the individual was covered as
a dependent, the termination of the other plan's coverage, cessation
of an employer's contribution toward an employee or dependent's
coverage, death of the person through whom the individual was covered
as a dependent, legal separation, divorce, or loss of no
share-of-cost Medi-Cal coverage.
   (D) He or she requests enrollment within 30 days after termination
of coverage or employer contribution toward coverage provided under
another employer health benefit plan.
   (2) The individual is employed by an employer who offers multiple
health benefit plans and the individual elects a different plan
during an open enrollment period.
   (3) A court has ordered that coverage be provided for a spouse or
minor child under a covered employee's health benefit plan.
   (4) (A) In the case of an eligible employee as defined in
paragraph (1) of subdivision (f), the carrier cannot produce a
written statement from the employer stating that the individual or
the person through whom an individual was eligible to be covered as a
dependent, prior to declining coverage, was provided with, and
signed acknowledgment of, an explicit written notice in boldface type
specifying that failure to elect coverage during the initial
enrollment period permits the carrier to impose, at the time of the
individual's later decision to elect coverage, an exclusion from
coverage for a period of 12 months as well as a six-month preexisting
condition exclusion unless the individual meets the criteria
specified in paragraph (1), (2), or (3).
   (B) In the case of an eligible employee who is a guaranteed
association member, the plan cannot produce a written statement from
the guaranteed association stating that the association sent a
written notice in boldface type to all potentially eligible
association members at their last known address prior to the initial
enrollment period informing members that failure to elect coverage
during the initial enrollment period permits the plan to impose, at
the time of the member's later decision to elect coverage, an
exclusion from coverage for a period of 12 months as well as a
six-month preexisting condition exclusion unless the member can
demonstrate that he or she meets the requirements of subparagraphs
(A), (C), and (D) of paragraph (1) or paragraph (2) or (3).
   (C) In the case of an employer or person who is not a member of an
association, was eligible to purchase coverage through a guaranteed
association, and did not do so, and would not be eligible to purchase
guaranteed coverage unless purchased through a guaranteed
association, the employer or person can demonstrate that he or she
meets the requirements of subparagraphs (A), (C), and (D) of
paragraph (1), or paragraph (2) or (3), or that he or she recently
had a change in status that would make him or her eligible and that
application for coverage was made within 30 days of the change.
   (5) The individual is an employee or dependent who meets the
criteria described in paragraph (1) and was under a COBRA
continuation provision and the coverage under that provision has been
exhausted.  For purposes of this section, the definition of "COBRA"
set forth in subdivision (e) of Section 1373.62 shall apply.
   (6) The individual is a dependent of an enrolled eligible employee
who has lost or will lose his or her no share-of-cost Medi-Cal
coverage and requests enrollment within 30 days after notification of
this loss of coverage.
   (7) The individual is an eligible employee who previously declined
coverage under an employer health benefit plan and who has
subsequently acquired a dependent who would be eligible for coverage
as a dependent of the employee through marriage, birth, adoption, or
placement for adoption, and who enrolls for coverage under that
employer health benefit plan on his or her behalf, and on behalf of
his or her dependent within 30 days following the date of marriage,
birth, adoption, or placement for adoption, in which case the
effective date of coverage shall be the first day of the month
following the date the completed request for enrollment is received
in the case of marriage, or the date of birth, or the date of
adoption or placement for adoption, whichever applies.  Notice of the
special enrollment rights contained in this paragraph shall be
provided by the employer to an employee at or before the time the
employee is offered an opportunity to enroll in plan coverage.
   (8) The individual is an eligible employee who has declined
coverage for himself or herself or his or her dependents during a
previous enrollment period because his or her dependents were covered
by another employer health benefit plan at the time of the previous
enrollment period.  That individual may enroll himself or herself or
his or her dependents for plan coverage during a special open
enrollment opportunity if his or her dependents have lost or will
lose coverage under that other employer health benefit plan.  The
special open enrollment opportunity shall be requested by the
employee not more than 30 days after the date that the other health
coverage is exhausted or terminated.  Upon enrollment, coverage shall
be effective not later than the first day of the first calendar
month beginning after the date the request for enrollment is
received.  Notice of the special enrollment rights contained in this
paragraph shall be provided by the employer to an employee at or
before the time the employee is offered an opportunity to enroll in
plan coverage.
   (m) "New business" means a health benefit plan issued to a small
employer that is not the carrier's in force business.
   (n) "Participating carrier" means a carrier that has entered into
a contract with the program to provide health benefits coverage under
this part.
   (o) "Plan of operation" means the plan of operation of the fund,
including articles, bylaws and operating rules adopted by the fund
pursuant to Article 3 (commencing with Section 10719).
   (p) "Program" means the Health Insurance Plan of California.
   (q) "Preexisting condition provision" means a policy provision
that excludes coverage for charges or expenses incurred during a
specified period following the insured's effective date of coverage,
as to a condition for which medical advice, diagnosis, care, or
treatment was recommended or received during a specified period
immediately preceding the effective date of coverage.
   (r) "Creditable coverage" means:
   (1) Any individual or group policy, contract, or program, that is
written or administered by a disability insurer, health care service
plan, fraternal benefits society, self-insured employer plan, or any
other entity, in this state or elsewhere, and that arranges or
provides medical, hospital, and surgical coverage not designed to
supplement other private or governmental plans.  The term includes
continuation or conversion coverage but does not include accident
only, credit, coverage for onsite medical clinics, disability income,
Medicare supplement, long-term care, dental, vision, coverage issued
as a supplement to liability insurance, insurance arising out of a
workers' compensation or similar law, automobile medical payment
insurance, or insurance under which benefits are payable with or
without regard to fault and that is statutorily required to be
contained in any liability insurance policy or equivalent
self-insurance.
   (2) The federal Medicare program pursuant to Title XVIII of the
Social Security Act.
   (3) The medicaid program pursuant to Title XIX of the Social
Security Act.
   (4) Any other publicly sponsored program, provided in this state
or elsewhere, of medical, hospital, and surgical care.
   (5) 10 U.S.C.A. Chapter 55 (commencing with Section 1071)
(Civilian Health and Medical Program of the Uniformed Services
(CHAMPUS)).
   (6) A medical care program of the Indian Health Service or of a
tribal organization.
   (7) A state health benefits risk pool.
   (8) A health plan offered under 5 U.S.C.A. Chapter 89 (commencing
with Section 8901) (Federal Employees Health Benefits Program
(FEHBP)).
   (9) A public health plan as defined in federal regulations
authorized by Section 2701(c)(1)(I) of the Public Health Service Act,
as amended by Public Law 104-191, the Health Insurance Portability
and Accountability Act of 1996.
   (10) A health benefit plan under Section 5(e) of the Peace Corps
Act (22 U.S.C.A. Sec. 2504(e)).
   (11) Any other creditable coverage as defined by subdivision (c)
of Section 2701 of Title XXVII of the federal Public Health Services
Act (42 U.S.C. Sec. 300gg(c)).
   (s) "Rating period" means the period for which premium rates
established by a carrier are in effect and shall be no less than six
months.
   (t) "Risk adjusted employee risk rate" means the rate determined
for an eligible employee of a small employer in a particular risk
category after applying the risk adjustment factor.
   (u) "Risk adjustment factor" means the percent adjustment to be
applied equally to each standard employee risk rate for a particular
small employer, based upon any expected deviations from standard
claims.  This factor may not be more than 120 percent or less than 80
percent until July 1, 1996.  Effective July 1, 1996, this factor may
not be more than 110 percent or less than 90 percent.
   (v) "Risk category" means the following characteristics of an
eligible employee:  age, geographic region, and family size of the
employee, plus the benefit plan design selected by the small
employer.
   (1) No more than the following age categories may be used in
determining premium rates:
   Under 30
   30-39
   40-49
   50-54
   55-59
   60-64
   65 and over
   However, for the 65 and over age category, separate premium rates
may be specified depending upon whether coverage under the health
benefit plan will be primary or secondary to benefits provided by the
federal Medicare program pursuant to Title XVIII of the federal
Social Security Act.
   (2) Small employer carriers shall base rates to small employers
using no more than the following family size categories:
   (A) Single.
   (B) Married couple.
   (C) One adult and child or children.
   (D) Married couple and child or children.
   (3) (A) In determining rates for small employers, a carrier that
operates statewide shall use no more than nine geographic regions in
the state, have no region smaller than an area in which the first
three digits of all its ZIP Codes are in common within a county and
shall divide no county into more than two regions.  Carriers shall be
deemed to be operating statewide if their coverage area includes 90
percent or more of the state's population.  Geographic regions
established pursuant to this section shall, as a group, cover the
entire state, and the area encompassed in a geographic region shall
be separate and distinct from areas encompassed in other geographic
regions.  Geographic regions may be noncontiguous.
   (B) In determining rates for small employers, a carrier that does
not operate statewide shall use no more than the number of geographic
regions in the state than is determined by the following formula:
the population, as determined in the last federal census, of all
counties which are included in their entirety in a carrier's service
area divided by the total population of the state, as determined in
the last federal census, multiplied by nine.  The resulting number
shall be rounded to the nearest whole integer.  No region may be
smaller than an area in which the first three digits of all its ZIP
Codes are in common within a county and no county may be divided into
more than two regions.  The area encompassed in a geographic region
shall be separate and distinct from areas encompassed in other
geographic regions.  Geographic regions may be noncontiguous.  No
carrier shall have less than one geographic area.
   (w) "Small employer" means either of the following:
   (1) Any person, proprietary or nonprofit firm, corporation,
partnership, public agency, or association that is actively engaged
in business or service that, on at least 50 percent of its working
days during the preceding calendar quarter, or preceding calendar
year, employed at least two, but not more than 50, eligible
employees, the majority of whom were employed within this state, that
was not formed primarily for purposes of buying health insurance and
in which a bona fide employer-employee relationship exists.  In
determining whether to apply the calendar quarter or calendar year
test, the insurer shall use the test that ensures eligibility if only
one test would establish eligibility.  However, for purposes of
subdivisions (b) and (h) of Section 10705, the definition shall
include employers with at least three eligible employees until July
1, 1997, and two eligible employees thereafter.  In determining the
number of eligible employees, companies that are affiliated companies
and that are eligible to file a combined income tax return for
purposes of state taxation shall be considered one employer.
Subsequent to the issuance of a health benefit plan to a small
employer pursuant to this chapter, and for the purpose of determining
eligibility, the size of a small employer shall be determined
annually.  Except as otherwise specifically provided, provisions of
this chapter that apply to a small employer shall continue to apply
until the health benefit plan anniversary following the date the
employer no longer meets the requirements of this definition.  It
includes any small employer as defined in this paragraph who
purchases coverage through a guaranteed association, and any employer
purchasing coverage for employees through a guaranteed association.

   (2) Any guaranteed association, as defined in subdivision (y),
that purchases health coverage for members of the association.
   (x) "Standard employee risk rate" means the rate applicable to an
eligible employee in a particular risk category in a small employer
group.
   (y) "Guaranteed association" means a nonprofit organization
comprised of a group of individuals or employers who associate based
solely on participation in a specified profession or industry,
accepting for membership any individual or employer meeting its
membership criteria which (1) includes one or more small employers as
defined in paragraph (1) of subdivision (w), (2) does not condition
membership directly or indirectly on the health or claims history of
any person, (3) uses membership dues solely for and in consideration
of the membership and membership benefits, except that the amount of
the dues shall not depend on whether the member applies for or
purchases insurance offered by the association, (4) is organized and
maintained in good faith for purposes unrelated to insurance, (5) has
been in active existence on January 1, 1992, and for at least five
years prior to that date, (6) has been offering health insurance to
its members for at least five years prior to
                 January 1, 1992, (7) has a constitution and bylaws,
or other analogous governing documents that provide for election of
the governing board of the association by its members, (8) offers any
benefit plan design that is purchased to all individual members and
employer members in this state, (9) includes any member choosing to
enroll in the benefit plan design offered to the association provided
that the member has agreed to make the required premium payments,
and (10) covers at least 1,000 persons with the carrier with which it
contracts.  The requirement of 1,000 persons may be met if component
chapters of a statewide association contracting separately with the
same carrier cover at least 1,000 persons in the aggregate.
   This subdivision applies regardless of whether a master policy by
an admitted insurer is delivered directly to the association or a
trust formed for or sponsored by an association to administer
benefits for association members.
   For purposes of this subdivision, an association formed by a
merger of two or more associations after January 1, 1992, and
otherwise meeting the criteria of this subdivision shall be deemed to
have been in active existence on January 1, 1992, if its predecessor
organizations had been in active existence on January 1, 1992, and
for at least five years prior to that date and otherwise met the
criteria of this subdivision.
   (z) "Members of a guaranteed association" means any individual or
employer meeting the association's membership criteria if that person
is a member of the association and chooses to purchase health
coverage through the association.  At the association's discretion,
it may also include employees of association members, association
staff, retired members, retired employees of members, and surviving
spouses and dependents of deceased members.  However, if an
association chooses to include those persons as members of the
guaranteed association, the association must so elect in advance of
purchasing coverage from a plan.  Health plans may require an
association to adhere to the membership composition it selects for up
to 12 months.
   (aa) "Affiliation period" means a period that, under the terms of
the health benefit plan, must expire before health care services
under the plan become effective.
  SEC. 4.  No reimbursement is required by this act pursuant to
Section 6 of Article XIIIB of the California Constitution because the
only costs that may be incurred by a local agency or school district
will be incurred because this act creates a new crime or infraction,
eliminates a crime or infraction, or changes the penalty for a crime
or infraction, within the meaning of Section 17556 of the Government
Code, or changes the definition of a crime within the meaning of
Section 6 of Article XIIIB of the California Constitution.
